Oil prices rose slightly on Tuesday on speculation that supplies will be tight late in the year, confounding brokers who believe prices should be falling given that crude inventories are steadily rising.
After rising as high as $53.10, light sweet crude for June delivery settled 4 cents higher at $52.07 a barrel on the New York Mercantile Exchange (search).
Unleaded gasoline futures rose by 2.3 cents to $1.5103 a gallon, while heating oil futures advanced by less than a penny to $1.4496 a gallon.
The fear in the market right now is that demand will outstrip supply next winter, as a major OPEC producer said the cartel may not be able to pump enough oil to meet needs for the remainder of 2005. Analysts said bottlenecks in refining capacity have also helped to underpin prices, along with strong demand in Asia.
Prices were given an upward nudge Tuesday after Qatar's oil minister, Abdullah Hamad al-Attiyah, raised concerns over the Organization of Petroleum Exporting Countries' (search) capacity to deal with demand for the next Northern Hemisphere winter, when global consumption peaks.
"OPEC is at its highest production in history. I am concerned about that. If we reach the full capacity now, we will tighten in the fourth quarter," Dow Jones Newswires quoted al-Attiyah as saying.
OPEC pumps around 40 percent of world oil and raised production to about 30 million barrels daily this year in an effort to boost stocks and steady prices ahead of summer. The increased production has some analysts concerned that OPEC is pumping at full tilt, with no spare capacity in the event of an unscheduled outage or a sudden rise in global demand.
But some brokers are surprised that the price of oil has remained as high as it has, noting that U.S. inventories are abundant and that the retail price of gasoline has even started to fall, as a result.
"There's a little bit of a disconnect between the (supply-demand) fundamentals and the (price) trend," said Ed Silliere, a broker at Energy Merchant Intermarket Futures in New York. "Prices should retreat in the next month or so into the mid-$40s."
The average U.S. pump price for regular unleaded is now $2.19 a gallon, down from a high of $2.28 a month ago, according to the Energy Department. On Tuesday, the agency said that gasoline prices may have peaked for the year and it lowered its average pump price forecast for the summer by 11 cents to $2.17 a gallon.
On Wednesday, the U.S. Department of Energy (search) releases its weekly petroleum inventory report, while the Paris-based International Energy Agency (search) issues its monthly oil data that forecasts global demand.
But even increased inventories and reduced demand growth might not brake market sentiment.
Last week traders shrugged off data pointing to both of these trends, sending prices upward on concern over U.S. refineries' ability to boost output ahead of the U.S. summer driving season while also looking toward its heating oil production for winter.